Critics: Big hospitals mean bigger costs to consumers

Critics of major hospital mergers say they have a history of driving up health care costs, as big health systems use their marketplace leverage to get higher rates from insurers.

“An increase in (hospital) consolidation leads to an increase in prices,” said Sujoy Chakravarty, a professor at the Rutgers Center for State Health Policy.

Chakravarty cited a 2012 research analysis by the Robert Wood Johnson Foundation that concluded hospital consolidation generally results in higher prices.

“And those increases in prices will ultimately translate into increases in premiums for consumers,” he said.

That's a viewpoint David Knowlton, president of the New Jersey Health Care Quality Institute, can appreciate.

“Can hospitals do wonderful things by combining, can they spread the administrative burden and save money? Absolutely,” he said.

But, he said, mergers become anticompetitive if the big health care system says to the insurer: “We won't negotiate unless you meet our terms, because we've sucked up most of the covered lives” in a particular territory.

“It is hard to find the proper balance,” he said.

Ward Sanders, president of the health insurer trade group the New Jersey Association of Health Plans, said the efficiencies of larger health care systems are overshadowed by higher prices. “Plans and consumers want to pay based on value and quality, not the size of the entity or the volume of procedures,” he said.

Princeton University professor Uwe Reinhardt, a leading health care economist, said hospitals should face limits on price increases. Specifically, he'd tie increases to the consumer price index for at least five years.

“Every hospital consolidation that has ever been proposed has been justified on the grounds that it will increase efficiency, lower the cost of producing hospital care and therefore lower prices, or keep them in check,” Reinhardt said. “Yet a huge body econometric literature suggests that other things being equal, hospital consolidation has pushed up the prices hospitals charge.”

Barry Ostrowsky, chief executive of New Jersey's largest hospital system, Barnabas Health, said, “The conventional theory has been if you become big, then you have greater leverage in negotiating with insurance companies.”

But if that's true, he added, “it's more in the past than it will be in the future.”

“I think it's clear that insurance companies or anyone else that finances health care are looking to reduce reimbursements for services, and they are looking to insist that providers of health care are as efficient as they can be,” Ostrowsky said.

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Beth Fitzgerald

Beth Fitzgerald reports on health care, small business and higher education. She joined NJBIZ in 2008 after a 34-year career at the Star-Ledger and has been reporting on business in New Jersey since 1978. Her email is beth@njbiz.com and she is @bethfitzgerald8 on Twitter.